USD Edges Higher, but Dollar Index Still Struggles to Recover

The US Dollar (USD) saw a slight uptick heading into Friday’s session, but overall losses for the week continue to weigh on momentum. While the greenback is attempting to stabilize, the US Dollar Index (DXY) remains under pressure, hovering near the 99 level, according to Scotiabank strategists Shaun Osborne and Eric Theoret. The broader market tone suggests that the dollar may be entering a consolidation phase rather than staging a true recovery.

Markets Shift Focus to the Federal Reserve Meeting

With limited catalysts in overnight trading, movement across the FX market remains muted. Investors appear to be positioning cautiously ahead of next week’s Federal Reserve meeting. Although Fed officials will not have access to the delayed Non-Farm Payrolls (NFP) report, the latest private-sector data continues to signal a cooling US labor market.

This week’s ADP report showed a 32,000 decline in private-sector jobs, while the Revelio PLS dataset recorded a 9,000 drop in hiring. These alternative employment indicators often deviate from official NFP numbers on a monthly basis, but the trend is unmistakable: job growth is slowing significantly.

This ongoing labor market softness strengthens expectations for a 25 basis-point rate cut at Wednesday’s FOMC meeting. However, the policy outlook for 2026 remains more uncertain, with investors watching economic data closely for clues.

What the DXY reveals about the USD — why the dollar is under pressure and what could drive the next move.

Also expected today are the delayed September Personal Income, Spending, and PCE inflation reports. Forecasts suggest moderate increases in income and consumer spending, while Core PCE inflation is projected to ease slightly to 2.8%—a move that could reinforce the case for further policy easing next year.

Sentiment Data and Technicals Keep Pressure on the Dollar

The preliminary reading of the University of Michigan Consumer Sentiment Index is expected to tick up to 52, although it remains near historic lows. Weak sentiment continues to highlight underlying economic concerns.

Despite the dollar’s brief pause in losses, technical indicators remain firmly bearish. A second consecutive weekly decline in the DXY suggests that downside pressure is still intact, with Scotiabank strategists maintaining a target toward the mid-97 range.

Additionally, seasonal trends in December typically favor a weaker dollar, adding another layer of pressure as the month progresses.

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